Terminals (Nz) Ltd v Comptroller of Customs

JurisdictionNew Zealand
CourtSupreme Court
JudgeGlazebrook J
Judgment Date06 December 2013
Neutral Citation[2013] NZSC 139
Docket NumberSC 6/2013
Date06 December 2013

[2013] NZSC 139



Elias CJ, McGrathWilliam YoungGlazebrookGault JJ

SC 6/2013

Terminals (Nz) Limited
Comptroller Of Customs

R E Harrison QC and A C Sorrell for Appellant

M S R Palmer and S M Kinsler for Respondent

Appeal from Court of Appeal's decision that the blending of butane with motor spirit (petrol) constituted “manufacture” under s2 Customs and Excise Act 1996 (“CEA”) (interpretation) — addition of butane increased the volume of the pre-existing motor spirit — appellant owned and operated a facility where it stored petrol for its sister company Gull New Zealand Ltd — it dispatched stored fuel products for transportation by road to fuel retailers in the North Island — respondent contended that the blending constituted manufacturing, with the consequence that the appellant ought to have been paying duty at a higher rate on the full volume of motor spirit resulting from the process — whether blending constituted “any operation, or process, involved in the production of the motor spirit under s2 CEA — whether the expressions “manufacture” and “production” required there to be a process where the resulting goods were intrinsically different from the component ingredients used — what was the correct approach to the statutory interpretation of taxation legislation.

The issues were: whether the blending of butane constituted “any operation, or process, involved in the production of the motor spirit under s2 CEA; whether the expressions “manufacture” and “production” required there to be a process where the resulting goods were intrinsically different from the component ingredients used; and what was the correct approach to the statutory interpretation of taxation legislation,

Held: The blending of butane with motor spirit was an “operation” or “process” (as accepted by Terminals). The blending process used custom-built, computer-controlled, dedicated pumping and pipeline facilities to blend the motor spirit with the added butane. Butane was not motor spirit. It was only one of the constituent ingredients of motor spirit and therefore did not fall within the definition of petrol under the Engine Fuel Specifications Regulations 2011 (“the Regulations”).

Terminals’ argument that the blending and resulting increase in the quantity of motor spirit was merely part of its dispatch operations was not accepted. Its argument failed to take into account the complex nature of the blending process. The sole question was whether it resulted in the production of motor spirit. If what was dispatched had been “produced” then manufacturing had occurred under the statutory definition.

The blending had been rightly accepted by Terminals to be a “process” or “operation”. The blended product was not chemically identical to the pre-blended motor spirit. Even if it had not been accepted that a different good had been produced, it was clear that the process had resulted in there being more motor spirit. That the blending of butane with motor spirit came within the definition of manufacture was also contextually supported by the fact that excise duty was imposed on motor spirit (whether imported or locally manufactured) on the basis of volume.

The fact that the duty was a proxy for consumption, that it was an hypothecated tax and that the rates were effectively set on the basis of the cost of roading and related costs were all powerful indications that it was not intended that any volume of motor spirit released for home consumption would be subject to duty at a lower rate than the motor spirit rate.

Under s5(1) Interpretation Act 1999 (ascertaining meaning of legislation), the text of a provision was to be construed in light of its purpose. Taxation statutes were construed purposively in the same manner as any other statute. “Fair construction” was a reference back to there being no presumption in favour of either party and to the purposive construction accorded to all statutes. The fact that there was no general anti-avoidance provision in the CEA did not change the principles of interpretation that were to be applied.

Terminals relied on overseas cases that held that the expressions “manufacture” and “production” required there to be a process where the resulting goods were intrinsically different from the component ingredients used to produce it. These case were decided in different legislative and factual contexts and were not directly relevant. These authorities did not suffice to show that there was a clear, accepted and universal meaning ascribed to the words “manufacture” and “production” and that the legislature must have intended the words it used to have that accepted meaning in an excise duty context.

The meaning of the particular words in the particular statute had to be ascertained from the text considered in light of the purpose of the provision. In the context of a product (motor spirit) that was by its nature blended, it would be unlikely that Parliament would have considered the cases that suggested that blending did not constitute manufacturing, to be controlling. The motor spirit which was produced as a result of the blending process had different characteristics from the motor spirit before the blending. It was therefore arguable that it was a different product, at least for excise duty purposes.

It did not make any difference if the blending occurred in a dispatch operation or a refinery. It was accepted that the blending in this case was a process or operation. There was nothing in the definition that required the process or operation to be a “chemical or other technological process”. In any case, even if that were a requirement, the blending process here was a sophisticated computer-controlled operation which would surely fall within the concept of “technological” process.

At the time the CEA was enacted in 1996 the definition of manufacture moved to an exhaustive rather than inclusive definition, but was otherwise in substantially the same terms as the provision at issue in International Bottling Co Ltd v Collector of Customs (held that blending two different strengths of imported vermouth did not mean that the company was “producing wine”). In October 2002, the definition of manufacture was amended by the Customs and Excise Amendment Act (No 2) 2002 which introduced the current definition of manufacture at issue in this case. The 2002 Amendment Act expanded the definition of manufacture by dividing it into three different limbs, dealing separately with tobacco, fuel and with goods specified in the Third Schedule which were neither tobacco nor fuel.

It was not safe to assume that, in re-enacting the substantially the same definition as that contained in the 1966 predecessor Act, Parliament intended to accept the interpretation of that definition pronounced in International Bottling. The circumstances at issue in International Bottling were far removed from those applying in this case. Choosing not to amend the definition of manufacture as it related to fuels to include reference to blending could equally be taken to suggest that Parliament simply had not considered it necessary because blending was already taken to be included in the definition as it related to fuel. Interpreting the meaning of one part of a definition by contrast to another part of that definition that was dealing with entirely different goods had to be approached with caution.

There were not two different regimes for imported goods and for manufactured goods. If excise-equivalent duty on goods had already been paid then a credit was available under s85 CEA (duty credits) where those goods were subsequently used in manufacture.

The process of blending butane with motor spirit led to the production of the motor spirit produced by that blending process. It therefore fell within the definition of manufacture in the CEA.

Appeal dismissed.

  • A The appeal is dismissed..

  • B Costs of $25,000 plus usual disbursements (to be determined by the Registrar if necessary) are to be paid to the respondent. We certify for two counsel..



(Given by Glazebrook J)

Table of Contents

Para No



The legislative background


Issues in the appeal


Definition of manufacture


The parties’ contentions


The processes involved


Composition of motor spirit


Our assessment


Approach to the interpretation of taxation statutes


Terminals' contention


Our assessment


Caselaw on the terms “manufacture” and “production”


Terminals' submissions


The Comptroller's submissions


Our assessment


Legislative history


Terminals' submissions


Legislative history


The definition of manufacturing as first introduced


The effect of the 2002 amendment


Different limbs of the definition


Terminals' submissions


Our assessment


Double taxation


Terminals' submissions


Our assessment







Terminals (NZ) Ltd owns and operates a facility at Mt Maunganui, where it stores motor spirit (petrol), diesel and other fuel products for its sister company, Gull New Zealand Ltd. It also stores motor spirit for BP New Zealand Ltd. As and when requested by Gull or BP, it dispatches stored fuel products (usually into a bulk fuel tanker) for transportation by road to fuel retailers in the North Island. 1


Since 2003, as part of its operations, Terminals has blended butane 2 with motor spirit. The total volume of the pre-existing motor spirit is increased during this process so that, if five litres of butane is added to 100 litres of motor spirit,...

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